Does a Seller Really Want Another Bidder?
Jeremy I. Bulow and Paul D. Klemperer (AER, 1996) argue that the usual concerns of auction design miss the big picture, and show that a simple English auction without a reserve price and N + 1 bidders attains expected revenue in excess of any auction with N bidders. The issue of how this additional bidder might be attracted is not treated in their model. In fact, that an auction can convince another bidder it is worth his while to compete carries a critical message about expected revenue. In those many markets where potential bidders decide whether to compete in an auction based on the expected probability of bidding, Bulow and Klemperer's conclusion is shown here to be overturned. I explore the symmetric equilibrium of a model where potential bidders first decide whether to participate in an auction, and then participants select bidding strategies. Expected revenue is increased by some degree of bidder discouragement, in that it is never optimal to have all N potential bidders participate with probability one, even for very small N
|Date of creation:||15 May 2007|
|Contact details of provider:|| Postal: 118 Professional Building, Columbia, MO 65211|
Phone: (573) 882-0063
Fax: (573) 882-2697
Web page: http://economics.missouri.edu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ronald M Harstad, 2011. "Endogenous Competition Alters the Structure of Optimal Auctions," ISER Discussion Paper 0816, Institute of Social and Economic Research, Osaka University.
- Jacob K. Goeree & Charles R. Plott & John Wooders, 2004.
"Bidders' Choice Auctions: Raising Revenues Through the Right to Choose,"
Journal of the European Economic Association,
MIT Press, vol. 2(2-3), pages 504-515, 04/05.
- Goeree, Jacob & Plott, Charles & Wooders, John, 2003. "Bidders' choice auctions: Raising revenues through the right to choose," Working Papers 1181, California Institute of Technology, Division of the Humanities and Social Sciences.
- Gaver, Kenneth M & Zimmerman, Jerold L, 1977. "An Analysis of Competitive Bidding on BART Contracts," The Journal of Business, University of Chicago Press, vol. 50(3), pages 279-95, July.
- McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
- Laffont, J.J., 1996.
"Game Theory and Empirical Economics: The Case of Auction Data,"
95.394, Toulouse - GREMAQ.
- Laffont, Jean-Jacques, 1997. "Game theory and empirical economics: The case of auction data 1," European Economic Review, Elsevier, vol. 41(1), pages 1-35, January.
- Professor Paul Klemperer, 2000.
"What Really Matters in Auction Design,"
- Eric Maskin & John Riley, 2000. "Equilibrium in Sealed High Bid Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 439-454.
- Robert H. Porter, 1992.
"The Role of Information in U.S. Offshore Oil and Gas Lease Auctions,"
1008, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Porter, Robert H, 1995. "The Role of Information in U.S. Offshore Oil and Gas Lease Auctions," Econometrica, Econometric Society, vol. 63(1), pages 1-27, January.
- Robert H. Porter, 1992. "The Role of Information in U.S. Offshore Oil and Gas Lease Auctions," NBER Working Papers 4185, National Bureau of Economic Research, Inc.
- Bergemann, Dirk & Pesendorfer, Martin, 2001.
"Information Structures in Optimal Auctions,"
CEPR Discussion Papers
2991, C.E.P.R. Discussion Papers.
- Douglas K. Reece, 1978. "Competitive Bidding for Offshore Petroleum Leases," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 369-384, Autumn.
- Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, vol. 49(6), pages 1477-99, November.
- Hausch, Donald B & Li, Lode, 1993. "A Common Value Auction Model with Endogenous Entry and Information Acquisition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(2), pages 315-34, April.
- Roberto Burguet, .
"Right To Choose In Oral Auctions,"
UFAE and IAE Working Papers
439.99, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Orley Ashenfelter & David Genesove, 1992.
"Testing for Price Anomalies in Real Estate Auctions,"
NBER Working Papers
4036, National Bureau of Economic Research, Inc.
- Ashenfelter, Orley & Genesove, David, 1992. "Testing for Price Anomalies in Real-Estate Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 501-05, May.
- Ashenfelter, O. & Genesove, D., 1992. "Testing for Price Anomalies in Real Estate Auctions," Working papers 92-2, Massachusetts Institute of Technology (MIT), Department of Economics.
- Ashenfelter, O. & Genesove, D., 1992. "Testing for Price Anomalies in real Estate Auctions," Papers 128, Princeton, Department of Economics - Financial Research Center.
- Milgrom, Paul R & Weber, Robert J, 1982.
"A Theory of Auctions and Competitive Bidding,"
Econometric Society, vol. 50(5), pages 1089-1122, September.
- Ronald M. Harstad & Aleksandar Pekec & Ilia Tsetlin, 2005.
"Information Aggregation in Auctions with an Unknown Number of Bidders,"
0605, Department of Economics, University of Missouri.
- Harstad, Ronald M. & Pekec, Aleksandar Sasa & Tsetlin, Ilia, 2008. "Information aggregation in auctions with an unknown number of bidders," Games and Economic Behavior, Elsevier, vol. 62(2), pages 476-508, March.
- Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
- Jacques Crémer & Yossi Spiegel & Charles Zheng, 2009.
"Auctions with costly information acquisition,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(1), pages 41-72, January.
- Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
- Roberto Burguet, 2005. "The condominium problem; auctions for substitutes," Review of Economic Design, Springer;Society for Economic Design, vol. 9(2), pages 73-90, 04.
- James Cox & Sam Dinkin & James Swarthout, 2001. "Endogenous Entry and Exit in Common Value Auctions," Experimental Economics, Springer;Economic Science Association, vol. 4(2), pages 163-181, October.
- Eliaz, Kfir & Offerman, Theo & Schotter, Andrew, 2008. "Creating competition out of thin air: An experimental study of right-to-choose auctions," Games and Economic Behavior, Elsevier, vol. 62(2), pages 383-416, March.
- John G. Riley & William Samuelson, 1979.
UCLA Economics Working Papers
152, UCLA Department of Economics.
- Gale Ian L. & Hausch Donald B., 1994. "Bottom-Fishing and Declining Prices in Sequential Auctions," Games and Economic Behavior, Elsevier, vol. 7(3), pages 318-331, November.
- Dirk Bergemann & Juuso Valimaki, 2002.
"Information Acquisition and Efficient Mechanism Design,"
Econometric Society, vol. 70(3), pages 1007-1033, May.
- Dirk Bergemann & Juuso Vaimaki, 2000. "Information Acquisition and Efficient Mechanism Design," Cowles Foundation Discussion Papers 1248, Cowles Foundation for Research in Economics, Yale University.
- Ronald M. Harstad & Michael H. Rothkopf, 2000.
"An "Alternating Recognition" Model of English Auctions,"
INFORMS, vol. 46(1), pages 1-12, January.
- Harstad, Ronald M. & Michael H. Rothkopf, 1995. "An "Alternating Recognition" Model of English Auctions," Discussion Paper Serie B 348, University of Bonn, Germany.
- Michael H. Rothkopf, 1969. "A Model of Rational Competitive Bidding," Management Science, INFORMS, vol. 15(7), pages 362-373, March.
- Robert Wilson, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 511-518.
- Gale, I. & Hausch, D., 1992. "Bottom-Fishing and Declining Prices in Sequential Auctions," Working papers 9215, Wisconsin Madison - Social Systems.
- Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
- Harstad, Ronald M, 1990. "Alternative Common-Value Auction Procedures: Revenue Comparisons with Free Entry," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 421-429, April.
- French, Kenneth R & McCormick, Robert E, 1984. "Sealed Bids, Sunk Costs, and the Process of Competition," The Journal of Business, University of Chicago Press, vol. 57(4), pages 417-41, October.
- Milgrom, Paul R, 1981. "Rational Expectations, Information Acquisition, and Competitive Bidding," Econometrica, Econometric Society, vol. 49(4), pages 921-43, June.
When requesting a correction, please mention this item's handle: RePEc:umc:wpaper:0711. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valerie Kulp)
If references are entirely missing, you can add them using this form.